There were positives and negatives for Kereos Inc., as it went about chasing its $19.5 million Series B round.

Here's a positive - not just for Kereos, but for all of biotech: While the company began in May 2004 its "hard leg work" to raise the $19.5 million, as the round moved into this year, things got better, said Robert Beardsley, its CEO and president.

"The [financing] environment has improved dramatically as we've gotten into 2005," he told BioWorld Today.

But there were negatives. Some would-be investors were less than crazy about Kereos' dual focus on cancer diagnostics and drugs. What seemed to be an advantage in the firm's two lead products turned into a "predicament," Beardsley said. "[A therapeutics VC] would see a diagnostic product, and say, We don't do that,'" and vice versa.

"In early stages, people triage" when investing, Beardsley noted. Instead of looking for attractive aspects of a company, they look for "things they don't like" in order to say no. And Kereos' location didn't help.

"We can't hide our byline that we are out of St. Louis," he said. "There is some bias toward companies that are not in San Francisco, Boston and maybe San Diego."

What Kereos, of St. Louis, ended up with is "a syndicate that sees there is an advantage of having both" aspects to its pipeline, Beardsley said. Kereos, he said, had lived off a Series A round done in 2001 of "just under $1 million," but now has money expected to last for the next two years and will add about another six employees to its 12-person base that functions as a "quasi-virtual company."

"We use CROs for horsepower, but we use people in house to keep the CROs honest," he said, adding that Kereos has "been very efficient at leveraging our funds, and we'll continue to be efficient, but [the Series B] raised the bar on how efficient you have to be." The company also has 35 scientists working on discovery and early development at Washington University in St. Louis on its behalf, Beardsley said.

The money also should get the company through Phase I/II studies with those lead products. First there is KI-0001, which has a perfluorocarbon core surrounded by a lipid layer. On top of that is a ligand-targeted payload - in this case, Gd(MeO-DOTA), an MRI imaging agent that targets avß3, which is associated with tumor angiogenesis and has been "shown in a number of studies to be predictive of a patients' prognosis," Beardsley said. The compound is designed to detect solid tumors as small as 1 mm in size; positron emission tomography typically finds tumors 1 cm in size.

The second product, KI-1001, has the same core as KI-0001, but has paclitaxel slipped beneath the lipid layer. The targeting is expected to allow the drug to attack tumors with "negligible systemic exposure" of the chemotherapeutic - Kereos said the amount can be less than 1 percent of a typical dose. Together, the compounds are meant to find cancer sooner and hit it harder with fewer side effects.

Both are injected and would be viewed as pharmaceutical agents by the FDA, and Beardsley expects to have them in the clinic in the second half of 2006.

Kereos also has two cardiovascular products in the same vein as its cancer drugs. KI-0002, partnered with Bristol-Meyers Squibb Co., of New York, is a fibrin-targeted MRI agent; KI-1003 is the drug counterpart. Those are further behind in the pipeline, but Kereos hopes to have KI-1003 in the clinic by 2007. The company also has deals with Philips Medical Systems Inc., of Andover, Mass., and Dow Chemical Co., of Midland, Mich., for targeted imaging agents.

With the ever more safety-conscious regulatory agencies, and the rising cost of health care, the atmosphere is primed for companies that can not only provide new therapeutics, but also tell doctors who should best receive them. Kereos seems to be growing up at the right time.

"I think the FDA, the payors and the physicians are all pushing in that direction," Beardsley said. "There are a number of products that have significant survival benefit for cancer, but [given] how you have to make them, they are very expensive for patients to receive. The payors don't want to be paying for them in patients that they aren't going to benefit," and the FDA doesn't want unhelpful drugs going into patients.

"To have a platform that allows you to create pairs of agents - that's very attractive," Beardsley said.

New investors Prolog Ventures and Triathlon Medical Ventures, both of St. Louis, and Charter Life Sciences, of Palo Alto, Calif., led the round, along with existing investor RiverVest Venture Partners, of St. Louis.

Existing investor Barnes-Jewish Hospital in St. Louis, also participated. Additional new investors included Alafi Capital, of San Francisco; Apjohn Ventures, of Kalamazoo, Mich.; Harris and Harris Group, of New York; Lux Capital, of New York; MB Venture Partners, of Memphis, Tenn.; Sigvion Capital; and Vectis Life Science, of St. Louis; as well as corporate investors Genentech Inc., of South San Francisco and Royal Philips Electronics.

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